SCHIP of Fools

Democrats have found a new way to speed the arrival of
single-payer health care: treat everyone like children.

By David Hogberg and Paul Gessing – 7.19.07

SCHIP stands for the State Children's Health Insurance Program. It was created in 1997 by Congress and President Clinton, and this year it is up for reauthorization.

SCHIP was intended to cover children in families who made too much to be eligible for Medicaid. The law was originally supposed to limit eligibility to families making not more than 200% of the poverty line ($40,300 for a family of four), but seven states set eligibility above 200% anyway. Furthermore, fourteen states have applied loose enough definitions of "child" to extend coverage to parents, pregnant women, or childless adults.

Democrats in Congress are trying to capture the spirit of those states. Bills sponsored by Sen. Hillary Clinton (NY) and Rep. John Dingell (MI) would permit states to expand SCHIP up to 400 percent of the poverty level. For a family of four, that means $82,600 a year. Thus, children in families that are in the top 25 percent of income-earners would be eligible for government-funded health insurance. We'll bet you didn't know that poverty reached so far up the income ladder, did you?

That same legislation would expand the definition of a "child" even further. Under the Clinton-Dingell legislation, states could offer Medicaid coverage for families who have "children" up to age 25. According to the Democrats' vision, those who are old enough to drive, vote, enter the military and drink alcohol are still in swaddling clothes when it comes to health insurance.

Strategically, it would seem that the Democrats are trying to achieve universal, government-run health insurance by making more and more Americans "children." The thinking seems to be that if government covers enough young adults and the children of enough people high up the income ladder, then eventually enough of the public will be supportive of extending such government insurance to everyone. Call it "socialized medicine on the installment plan."

Left as is, SCHIP would cost about $25 billion over five years. The cost to taxpayers for the Clinton-Dingell version would be about $85 billion over five years. This past week, the Senate has tried to appear more "reasonable." In the Senate Finance Committee, Senators Max Baucus (D-Montana) and Jay Rockefeller (D-WV) crafted an SCHIP bill that would spend "only" $60 billion. It would also only fully match states' SCHIP spending to cover children in families with income up to 300% of the poverty line. States will receive only partial funds if they decide to enroll children in families above 300% of poverty. It doesn't take a genius to figure out that strategy. The Democrats can reasonably assume some states will enroll children who are above 300% of poverty, thereby creating a new constituency for more government-funded health insurance. Five years from now you can bet that constituency will be pushing Congress to fully fund children in SCHIP who are above 300% of poverty.

However, Baucus and Rockefeller have had some help from the other side of the aisle. Republican Senators Chuck Grassley (IA) and Orrin Hatch (UT) have worked to craft this "compromise." Again they have forgotten that the GOP is supposed to be the party of Reagan, not the party of "let's spend, but just a little less than the Democrats want."

Recruiting new recipients isn't the only way SCHIP will move us closer to a government-run system. It will also make private insurance more expensive. The program at best puts modest demand restraints on recipients. With little to restrain their demand, families on SCHIP will increase their use of health care. This will increase the cost of health care which in turn will increase the cost of private insurance. As the cost of health insurance goes up, so will the number of employers dropping their insurance and the number of uninsured. Although, to our knowledge, no academic study has focused on the cost-effects of SCHIP, a recent paper (PDF) has found that the introduction of Medicare had profound effects on the cost of health care. There is little reason to think that SCHIP hasn't had a similar, if less profound, effect.

Then there is the problem of "crowd out." Crowd out occurs when government programs intended to help the uninsured subsidize those who would otherwise have had private health coverage. Often times, employers of lower-wage workers decline to provide insurance knowing such workers can qualify for program like Medicaid and SCHIP. A recent study by Jonathan Gruber and Kosali Simon suggested that crowd-out for SCHIP ranged between 30%-80%. In other words, for every 10 kids signed up for SCHIP, the number with private insurance drops by 3 to 8.

While Congress and presidential candidates looks for new ways to intervene in our already heavily socialized health care system, consumers are growing increasingly frustrated with what they perceive to be inadequate care at prices that are too high. Ultimately, what steps like SCHIP expansion might accomplish (whether by design or not) is to make the current system implode, thus causing a crisis that opens the door for a single-payer system. We can hope this does not happen, but in the meantime we must fight hard against the further government interventions in the health care market these efforts represent.

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